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Capital Gains Tax

Peter Grimm

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Question: During the last presidential campaign, didn't Obama promise to lower capital gains taxes? How come we haven't seen anything on that front?
 

Lutherf

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Cap gains are up this year. No more 15% treatment (including qualified dividends) and no more 0% for those in the 15% or lower bracket. A lot of people are going to be surprised come April 15th.
 

polisciguy

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Cap gains are up this year. No more 15% treatment (including qualified dividends) and no more 0% for those in the 15% or lower bracket. A lot of people are going to be surprised come April 15th.

Quite upsetting.
 

Fisher

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Cap gains are up this year. No more 15% treatment (including qualified dividends) and no more 0% for those in the 15% or lower bracket. A lot of people are going to be surprised come April 15th.

What are the rates now? I haven't checked this year since I have no plans to sell anything this year.
 

Lutherf

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What are the rates now? I haven't checked this year since I have no plans to sell anything this year.

I wish I could give you a good answer but it's not that simple. Right now the cap gains rate for long term gains is set to go to 10% for taxpayers in the 15% or lower bracket and 20% for everyone else but that's not exactly carved in stone. Congress usually makes this determination in Nov. but in recent years the decision hasn't been finalized until Dec or Jan.

There is also supposed to be a Medicare premium of 3.8% on investment income for taxpayers with an AGI in excess of $200k.
 

YoungConserv

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I've never really gotten capital gains tax it has allways rubbed me the wrong way as the the government taxing good decisions.
 

Papa bull

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I've never really gotten capital gains tax it has allways rubbed me the wrong way as the the government taxing good decisions.

Capital gains tax. Yeah, gotta love that one. You buy a piece of undeveloped property in 1980. You sell it 20 years later for 20% more than you paid for it. You get taxed on that 20% even though in real dollars you actually lost money after inflation.
 

sawyerloggingon

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I have a rental I want to sell if and when the housing market improves and the way I understand it I am going to have to pay a lot more tax on it when the time comes in order to fund obamacare so I guess he lied again. :shock:
 

Sisyphus

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Question: During the last presidential campaign, didn't Obama promise to lower capital gains taxes? How come we haven't seen anything on that front?

No. In fact, the RW-media called it into question, decrying Obama for saying he's merely returning to Clinton tax levels, except for the LTCG cuts.
 

Lutherf

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I have a rental I want to sell if and when the housing market improves and the way I understand it I am going to have to pay a lot more tax on it when the time comes in order to fund obamacare so I guess he lied again. :shock:

Maybe, but probably not unless you've owned it for a long time and have to recapture a bunch of depreciation. For most rentals I've dealt with by the time you add improvements, commissions and stuff into the basis there isn't a huge gain. I did run into an exception last year with a client who bought property near Redondo Beach in the 40's and sold it for $2.5 mil.
 

Heebie Jeebie

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Question: During the last presidential campaign, didn't Obama promise to lower capital gains taxes? How come we haven't seen anything on that front?

Because no one has made any gains? :)
 

head of joaquin

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Question: During the last presidential campaign, didn't Obama promise to lower capital gains taxes? How come we haven't seen anything on that front?

Because the Tea Party Occupation forces refuse to lower taxes on working people without lowering taxes on billionaires, which is stupid. So the GOP is holding the tax cut hostage. What's new?
 

YoungConserv

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Capital gains tax. Yeah, gotta love that one. You buy a piece of undeveloped property in 1980. You sell it 20 years later for 20% more than you paid for it. You get taxed on that 20% even though in real dollars you actually lost money after inflation.

Yeah and they don't care if you take a loss but if you make a profit pay up.
 

specklebang

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I think that's a Capital Loss and can be deducted from any future Capital Gains and you can also use $3K of it against ordinary income. Luther, please correct me if I'm wrong.

As for Capital Gains themselves, everyone imagines you start a business and sell it at a profit and poor little you have to pay up 20%. But mostly you buy into a hedge fund that invests in Chinmese businesses and then sells at a profit doing your own country zero good and you still pay ONLY 20%. How sad.



Yeah and they don't care if you take a loss but if you make a profit pay up.
 

Sisyphus

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Capital gains tax. Yeah, gotta love that one. You buy a piece of undeveloped property in 1980. You sell it 20 years later for 20% more than you paid for it. You get taxed on that 20% even though in real dollars you actually lost money after inflation.

Not how it works. You're taxed on the Gain, when it's taken. And the scenario you offered is an unlikely one, if purchased in 1980 and sold in 2000. Nominally, since saying inflation diminishing the initial investment portion, property values more than doubled over that period of time. Land that only appreciated by 20% was likely over-priced to begin with. (bad investment)

In fact, housing prices, even without the 2000-2009 Bubble, inflation adjusted, has an upward trajectory:

united_states.png
 

Papa bull

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Not how it works. You're taxed on the Gain, when it's taken. And the scenario you offered is an unlikely one, if purchased in 1980 and sold in 2000. Nominally, since saying inflation diminishing the initial investment portion, property values more than doubled over that period of time. Land that only appreciated by 20% was likely over-priced to begin with. (bad investment)

In fact, housing prices, even without the 2000-2009 Bubble, inflation adjusted, has an upward trajectory:

united_states.png

That is exactly how it works. You are taxed on the gains when you sell. If your gains aren't enough to cover the inflation that eroded the value, sorry about your luck. Don't get hung up on "real estate values". The example I gave illustrates one of the inequities of taxing capital gains. Your long term investments are eroded by inflation and could actually be losses in real dollars and still get taxed.
 

Sisyphus

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That is exactly how it works. You are taxed on the gains when you sell. If your gains aren't enough to cover the inflation that eroded the value, sorry about your luck. Don't get hung up on "real estate values". The example I gave illustrates one of the inequities of taxing capital gains. Your long term in segments are eroded by inflation and could actually be losses in real dollars and still taxed.

If I do get myself into a stupid investment paying future value to the tune of about 14 years, I deserve to take a hit; not that I'm that stupid. I'd get out and take the loss (reduce taxable income) far sooner than in 20 years.
 

Papa bull

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If I do get myself into a stupid investment paying future value to the tune of about 14 years, I deserve to take a hit; not that I'm that stupid. I'd get out and take the loss (reduce taxable income) far sooner than in 20 years.

That's some other discussion you need to have bragging about your financial wisdom. I'm just pointing out that gains over time are eroded by inflation and that's something people need to think about before they get their knickers in a twist because capital gains are taxed at lower rates than income.
 

Sisyphus

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That's some other discussion you need to have bragging about your financial wisdom. I'm just pointing out that gains over time are eroded by inflation and that's something people need to think about before they get their knickers in a twist because capital gains are taxed at lower rates than income.

Then don't invest. And your lala land anecdote, which contradicts what actually happened in the real estate market, might affect some dweeb somewhere. But to save that moron from his/her own stupidity, by lowering rates on all Gains is absurd.
 

head of joaquin

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Capital gains tax. Yeah, gotta love that one. You buy a piece of undeveloped property in 1980. You sell it 20 years later for 20% more than you paid for it. You get taxed on that 20% even though in real dollars you actually lost money after inflation.

Since you pay your taxes with the same non-nflation adjusted dollars, your plaint doesn't make a lot of mathematical sense.
 

head of joaquin

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That's some other discussion you need to have bragging about your financial wisdom. I'm just pointing out that gains over time are eroded by inflation and that's something people need to think about before they get their knickers in a twist because capital gains are taxed at lower rates than income.

And the dollars you pay the taxes with are also worth less, but still pay the entire tax bill in absolute terms So this is hardly much of a problem. You don't pay your capital gains with 1980s dollars for property you bought in 1980 and sold in 2013. You pay with 2013 dollars. So any inflation is already accounted for in the actually currency. Your making the same measuring, but only attributing it to the gain, not to the currency, when to the extent the gain is a function of inflation (not real appreciation), you are no better and no worse off.
 

AlabamaPaul

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Then don't invest. And your lala land anecdote, which contradicts what actually happened in the real estate market, might affect some dweeb somewhere. But to save that moron from his/her own stupidity, by lowering rates on all Gains is absurd.

How about if we lower taxes on earned income and raise taxes on capital gains to the point where both are equal while eliminating all deductions and credits?
 

Lutherf

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Not how it works. You're taxed on the Gain, when it's taken. And the scenario you offered is an unlikely one, if purchased in 1980 and sold in 2000. Nominally, since saying inflation diminishing the initial investment portion, property values more than doubled over that period of time. Land that only appreciated by 20% was likely over-priced to begin with. (bad investment)

In fact, housing prices, even without the 2000-2009 Bubble, inflation adjusted, has an upward trajectory:

Your chart shows that from 1980 to 2000 the trend for inflation adjusted house prices increased by roughly 13% or .65% per year. Papa Bull was talking about a "gain" which would be the result of a 1% per year gain. What I believe he is getting at is that the average rate of inflation during that period was roughly 4.25% which means that if he purchased the property for $50k he would need to sell it 20 years later for $110k just to have kept up with inflation so if he actually sold it for $60k and paid capital gains on the $10k "gain" he actually missed out on $50k if the value of his property had actually increased at the same rate as overall inflation.
 

Sisyphus

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Your chart shows that from 1980 to 2000 the trend for inflation adjusted house prices increased by roughly 13% or .65% per year. Papa Bull was talking about a "gain" which would be the result of a 1% per year gain. What I believe he is getting at is that the average rate of inflation during that period was roughly 4.25% which means that if he purchased the property for $50k he would need to sell it 20 years later for $110k just to have kept up with inflation so if he actually sold it for $60k and paid capital gains on the $10k "gain" he actually missed out on $50k if the value of his property had actually increased at the same rate as overall inflation.

PB said inflation reduced the return. So going with an inflation adjusted price comparison, would be taking the inflation-hit X 2.
 

head of joaquin

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How about if we lower taxes on earned income and raise taxes on capital gains to the point where both are equal while eliminating all deductions and credits?

How about raising capital gain on the top bracket and lowering it on the lower brackets. Thus accomplishing the purpose of capital gain treatment.

Are deductions really a problem? I like deductions. They make economic sense.
 
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